PANC 2012: Drafting Disclosures

Plan sponsors have a fiduciary obligation to avoid prohibited transactions or overpaying for fees which is where 408(b)(2) fee disclosure regulation can help.

“This arguably is just a way to help [plan sponsors] accomplish that” from the Department of Labor’s (DOL’s) perspective, David Kaleda, partner at Alston & Bird LLP, told attendees of the 2012 PLANADVISER National Conference.

Now that the 408(b)(2) deadline has passed, what should plan sponsors do going forward in order to meet fiduciary obligations, and how can advisers help them checklist the process? To begin, plan sponsors who did not receive 408(b)(2) statements from service providers or did not receive adequate information on those statements should send a notification letter to the provider, said Al Chingren, vice president of value-add sales for American Century Investments.

If the provider fails to send this information to the plan sponsor, the sponsor must report this to the DOL, Kaleda stressed. Once the sponsor receives the disclosure, it must be reviewed. “The point is you can’t ignore the notice,” he said.

Panelists acknowledged that there are many gray areas when it comes to disclosure, and DOL guidance is still needed, Kaleda said. For example, plan sponsors must determine if Employee Retirement Income Security Act (ERISA) reimbursement accounts and marketing allowances are considered indirect compensation and whether they must therefore be disclosed under 408(b)(2).

When reviewing disclosure statements, plan sponsors must determine if fees are reasonable, as well as document the entire process, said Vincent Morris, president of Bukaty Companies. One way to compare costs is through benchmarking reports, he suggested.

Chingren said he does not expect the DOL to issue benchmarking guidance, but the important thing is to show a process and how services match up against expenses is adequate. “This is not a low-cost decision,” he said. “It’s matching up value of services with the cost of providing those services.”